COMMISSIONER OF INCOME TAX Vs. POPULAR AUTOMOBILES

JUDGEMENT

(1.) THIS reference is at the instance of the Revenue from the order passed by the Income-tax Appellate Tribunal, Cochin Bench, in I. T. A. No. 197/Coch of 1987. The assessment year is 1977-78. Following is the question referred for the opinion of this court :

(2.) THE assessee is a partnership firm. While computing the income for the assessment year 1977-78, the Assessing Officer added a sum of Rs. 33,921 representing interest paid to Smt. Elsy Thomas, a partner in the firm, in her capacity as a trustee of Elsy and Saju Trust. She had deposited her personal funds in the firm and on such deposit, an amount of Rs. 33,921 was paid to her by the firm as interest. THE assessing authority disallowed the interest invoking the provisions of Section 40(b) of the Income-tax Act, 1961. THE appeal filed by the assessee was rejected by the Commissioner of Income-tax (Appeals). THE second appeal filed before the Tribunal was allowed. THE Tribunal took the view that Explanation 2 added to Section 40(b) by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985, recognising payment of interest to a person in dual capacity, is clarificatory in nature and retrospective in operation. THE Tribunal followed the decision of the Andhra Pradesh High Court in N. T. R. Estate v. CIT [1986] 157 ITR 285.

(3.) A copy of this judgment under the seal of this court and the signature of the Registrar, shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.